OilPrice.com Canada’s climate strategy to significantly cut emissions and become a net-zero emissions economy by 2050 will create a seismic shift in the large oil and gas sector, where up to three-quarters of the workers, or up to 450,000 people, are at risk of displacement, TD Bank said in a new report on Tuesday.
Executive Summary
The Canadian federal government’s recently updated climate strategy sets an important new target for greenhouse gas emissions reductions. By 2030, the plan is to reduce emissions by 32-40%, with a goal to be completely emissions neutral in 2050. Both commitments are critical to avoid the worst outcomes of climate change. However, achieving this magnitude of emissions reduction will require significant action.
The elephant in the room for Canada is that any climate change policy must come to terms with the outsized impact from carbon-intensive industries in the energy sector, specifically oil & gas. The extraction and distribution of oil & gas accounts for more than one-quarter of all of Canada’s GHG emissions, making it a prime target for reduction efforts.
This will come in two forms. The first is reducing overall dependence on burning fossil fuels for energy. Oil & gas account for nearly two-thirds of Canada’s primary energy demand, so reducing the carbon footprint implies a fundamental shift towards electrification, renewable electricity and clean fuels. The second will be in reducing the emissions intensity of the sector through technological innovation. In net zero scenarios, fossil fuel demand does not disappear entirely, but its ongoing viability will be determined by the industry’s ability to sequester emissions in all its forms.
Scenario projections that are consistent with reaching the net zero target show that demand for oil & gas in North America would likely need to fall by half, with production falling commensurately. According to Natural Resources Canada, roughly 600,000 Canadians, located mostly in Alberta, Saskatchewan, and Newfoundland and Labrador are either directly or indirectly employed in the oil & gas sector. We estimate between 50-75% of those workers are at risk of displacement in the transition through 2050, equivalent to 312,000 – 450,000 workers.
The belief is that many of those displaced will find a home in the clean energy sector, but we should not assume that the transition will absorb all displaced workers. The experience of both the U.S. and Canadian manufacturing sectors in the 1990s through to the early-2000s offers a cautionary tale. At that time, automation and skill-biased technological change led to a decline in manual, routine jobs across the economy. This led to widespread displacement of middle-skilled, middle-income workers. There was not a smooth transition into the modern economy, partly due to the formation of new jobs occurring in sectors and geographical locations that differed from the areas of those that were displaced. Relative to the U.S., Canada was spared some of the hollowing out of middle-income jobs and resulting inequality due to the presence of energy sector jobs. However, this is now about to change.
It is critical that we do not repeat the mistakes of the past and ensure a just transition for energy sector workers. We recommend that Canada’s just transition policy framework have three main elements:
- A redesigned retraining/upskilling framework that complements the Canada Training Benefit by working with industry and training service providers to identify and document the taxonomy of skills needed in the clean energy sector, focusing on better linkages between stakeholders and standardization in programming. Program outcomes should also be made transparent and align with labour market information.
- To the extent possible, focusing clean energy infrastructure and development within the same communities that will bear the brunt of the energy transition.
- Broad-based income supports that can partially offset income losses due to displacement, including specific supports for older workers, such as pension bridging grants.
The clean energy transition represents an enormous economic and social opportunity to redefine and reinvigorate Canada’s energy sector. Companies are already uniquely positioned to reorient and become global leaders in new energy opportunities due to their existing capabilities around major projects, governance and large-scale delivery. However, history has shown that natural unintended dynamics can press on inequality and underemployment if market forces are left unchecked. Efforts and resources on the clean energy transition should be matched by efforts and resources to transition workers displaced in the process.
Highlights
- Canada’s transition to a low carbon economy will have a significant economic impact on the oil & gas sector. We estimate it could displace between 312,000-450,000 workers over the next three decades.
- The structural decline in the fossil fuel industries evokes the memory of the manufacturing sector decline through the 1990s and early-2000s, where automation and a skill-biased technological shift permanently displaced middle-skilled, middle-income jobs.
- The clean-energy transition will create many new job opportunities, but there is no guarantee or automatic market mechanism to ensure these benefits accrue to where the costs will be borne on the displacement. This report lays out a framework to promote a just transition for workers.
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Canada aims to become a net-zero emissions economy within three decades, and to cut emissions by between 32 percent and 40 percent by 2030.
While those commitments could be critical to staving off the worst effects of global warming, Canada needs to take significant action, including coming to terms with the effect of climate policies on the oil and gas workers, the bank said.
“According to Natural Resources Canada, roughly 600,000 Canadians, located mostly in Alberta, Saskatchewan, and Newfoundland and Labrador are either directly or indirectly employed in the oil & gas sector. We estimate between 50-75% of those workers are at risk of displacement in the transition through 2050, equivalent to 312,000 – 450,000 workers,” TD Bank said in the report.
“The belief is that many of those displaced will find a home in the clean energy sector, but we should not assume that the transition will absorb all displaced workers,” the bank said, noting that it is critical that Canada do not repeat past mistakes and ensure a just transition for energy sector workers.
“The clean-energy transition will create many new job opportunities, but there is no guarantee or automatic market mechanism to ensure these benefits accrue to where the costs will be borne on the displacement,” according to the bank.
South of the border, in the United States, thousands of oil and gas jobs disappeared during the oil price and demand crash last year, and more and more former oil workers moved to jobs in the clean energy business. However, they have also taken a pay cut moving to renewables as the industry still pays lower than oil and gas.
